The after-tax cost of debt is usually cheaper than issuing preferred stock to the corporation, all things being equal.

Question

Quizplus · Accepted Answer

The after-tax cost of debt is usually cheaper than issuing preferred stock to the corporation because interest payments on debt are tax-deductible, while dividends on preferred stock are not. This reduces the net cost of debt to the corporation compared to the cost of issuing preferred stock.

The After-Tax Cost of Debt Is Usually Cheaper Than Issuing